15 Budget Ideas That Are Better Than Sequester Plan

Feb. 28 (Bloomberg) -- Let’s get something straight:
Sequestration doesn’t prove that the government is broken or
that it can’t get anything done. If anything, it proves the
opposite. This is the American government working. Compromising,
even.

In the summer of 2011, both parties came together and
agreed that they wanted to reduce the deficit. If they couldn’t
compromise on a more appealing policy, then they would use
sequestration, which was itself a compromise. The plan called
for deep, across-the-board cuts in defense and discretionary
domestic spending, with no consideration given to merit. The two
parties could, at any moment, choose to end sequestration by
passing a one-sentence law repealing it. That they’re not
passing that law -- or some alternative -- is a choice, evidence
that the parties prefer sequestration to any other option.

What sequestration proves is that the American government
is dumb. There have been three major deficit-reduction packages
in the past three years. The first passed in 2011 and set limits
on discretionary spending over the next decade. Next came the
tax increases in January’s fiscal-cliff deal, by which part of
the tax code reverted to its state prior to the administration
of President George W. Bush. Now we have sequestration, with
automatic, across-the-board cuts.

The total deficit reduction in these three policies is well
over $3 trillion, which gets close to stabilizing our debt-to-gross domestic product ratio for the next decade (though not
thereafter). What all these policies have in common is that
they’re brain-dead ways to reduce the deficit.

Better Ways

Michael Greenstone, an economist at the Massachusetts
Institute of Technology and director of the Hamilton Project,
anticipated that. So about six months ago he approached 15
experts and asked them for their best policy proposals, which
had to meet two conditions. First, they had to reduce the budget
deficit. Second, they had to have “broader positive effects,”
such as helping the economy, increasing government efficiency,
slowing global warming -- that sort of thing. “The point is we
can do good for the budget and do good for the longer-run
American economy,” Greenstone said.

The result is “15 Ways to Rethink the Federal Budget,” a
110-page guidebook for the undead on how to reduce the deficit.

Perhaps the best and most obvious idea is a carbon tax.
Adele Morris, policy director for the Climate and Energy
Economics Project at the Brookings Institution, proposes a $16-a-ton carbon tax that would lower the corporate tax rate,
include a rebate to low-income households and cut the deficit by
about $200 billion over 10 years -- all while helping fight
global warming, which is a far greater threat than the deficit.

A much milder alternative comes from Harvard University’s
Joseph Aldy. He proposes cutting fossil fuel subsidies out of
the tax code. That would raise more than $40 billion over the
next decade while slightly reducing greenhouse-gas emissions.

Dana Goldman, of the University of Southern California, and
Harvard’s Michael Chernew have a plan to move Medicare to a
“bundled payment” system, which would pay medical providers a
lump sum for care rather than a per-service fee. There are many
devils lurking in details here -- particularly how you measure
and share information about the quality of care -- but if
managed well, the changeover could save $100 billion while
giving providers a much-needed reason to begin managing disease
and disability in a coordinated way.

Long View

Speaking of disability, Harvard’s Jeffrey Liebman and the
Office of Management and Budget’s Jack Smalligan propose three
projects to test ways to reconfigure the disability system to
help injured workers get back to work sooner and in better
health. The ideas wouldn’t save much in the next decade -- $10
billion to $15 billion, the authors estimate -- but if they
produced a better disability system, the long-term dividends
could be huge for both workers and the budget.

Diane Lim, the chief economist at Pew Charitable Trusts,
proposes converting the various deductions in the tax code to 15
percent, nonrefundable tax credits. The resulting tax code would
be simpler and much more progressive. Oh, and it would raise
$2.7 trillion, much of which we could use to lower marginal tax
rates.

Pia Orrenius and Madeline Zavodny, of the American
Enterprise Institute, and Giovanni Peri, of the University of
California at Davis, have an innovative proposal to auction off
temporary work visas, which would help allocate them more
efficiently while raising $7 billion to $12 billion for the
federal government. If the system worked, it would also provide
valuable information -- through rising or falling visa prices at
auction -- about the demand for foreign workers and thus how to
set the parameters of our immigration system.

The point isn’t that each and every one of the Hamilton
Project’s ideas is great. It’s that each is an attempt to
formulate intelligent policy that will make the country better
as it makes the deficit smaller. That’s a far cry from
sequestration -- and the last few years of policy making
generally -- in which Washington appears to have resigned itself
to deficit reduction of almost exclusively bad, dumb ideas.

(Ezra Klein is a Bloomberg View columnist. The opinions
expressed are his own.)